TESTCODE221160IO

FORMTP2008178
CARIBBEAN EXAMINATIONS COUNCIL ADVANCEDPROF1CIENCYEXAMINATION ECONOMlCS
Unitl-Paper 01

MA YIJONE 2008

0)4
2. 3_

90 minutes JULY 2008 (p.m.?)

READ THE FOLLOWING DffiECTIONS CARE}'ULL Y
This test consists of 4S items. You will have 90 minutes to answer them. In addition to this test booklet, you should have an answer sheet. Do not be concerned that the answer sheet provides spaces for more answers than t~ere are items in this test. Each item in this test has four suggested answers lettered (A), (B), (C), (D). Read each item you are about to answer and decide which choice is best. On your answer shee t, fin d the number which corresponds to your item and shade the space ha yin g the same letter as the answer you have chosen. Look at the sample item below. Sample Item Prime costis calculated by adding direct factoryexpenses
(A) (B)

4.

5_

__

to the Sample Answer

(C) (D)

cost cost cost sale

of goods sold of materials used of raw materials of finished goods
IS

-"cost of materials used", so answer space (B) has been shaded. before you fill in your new choice.

I
\

-

The best answer to this item
6. 7.

If you want to change your answer, be sure to erase it completely

When you are told to begin, turn the page and work as quickly and as carefull y as you can. If you cannot -, answer an item, omit it and go on to the next one. Your total score will be the total number of correct answers. You may do any rough work in this booklet. You may use silent non-programmable calculators to answer questions.

8.

9.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.
Copyright 221 I 60 I O/CAPE 2008

© 2008

Caribbean Examinations Council.® All rights reserved.

-2]

.

Which of the following BEST defines the concept of 'economic scarcity'? (A)
(B) (C) (D)

4.

The statement that BEST explains the shift of curve from T to II is (A) an increase in input costs a decrease in available technology a discovery of new sources of raw materials a deterioration in the quality of natu ral resources

Goods and services to consumers are in short suppl y. Human wants are greater than the economy's resources. There are not enough resources available at present. The wants of society are greater than the supply of goods.
5.

(8) (C) (D)

Which of the following statements is correct about social cost?
(A) (B)

2.

Scarcity reg uires the producers of goods and services to make decisions such as 1. II. III. TV.
what to produce

for whom to produce how production should be carried out how many businesses they should operate 6. 1 and IV only 11 and IV only 1, and HI only I, II and IV only

(C)
CD)

Private Private social Private equal Private

costs equal external costs. costs plus external costs equal costs. costs minus external costs social costs. costs equal social costs.

(A)
(B) (C)

Which of the following is an example of a norman ve economic statement? (A)
(B)

(D)

n

Items 3 - 4.refer to the production possibility frontier shown below.
good y

(C)

(D)

TIle government should provide free medication for senior citizens. A reduction in the price of goods will benefit consumers. An increase in interest rates win attract foreign investors. An increase in the minimum wage w ill increase inflation.

3.

In this economy, a shift of the curve from I to II illustrates the effects of (A)
(B)

(C)
(D)

increasing returns inefficiency recession
growth

'22 I J 60 I ivc:»: PE 1008

CO ON TO THE NEXT PAGE

-37.

The demand curve for a n01111al good is said to be negatively sloped. Which of the graphs below represent a normal good')
(A) Price

Item 8 refers to the following diagram which shows the. demand CUI've for apples.
Price

would NOT

'.

s

s
D
p ------

Quantity

demanded

8.
D

One exogenous variable that would affect the demand for apples is (A)
(B)

Q
(B) Price

Quantity

supply

income
the price of apples quantity demanded

(C)

s
-----

(D)

P

Items 9 • 10 refer to the situation described below. After running a one-mile race Dwight drank 3 glasses of water. He got 20 utils from drinking the first glass of water, 23 utils from drinking the second glass and LOutils from drinking the third glass of water. 9. What is Dwight's total utility after consuming the second glass of water'?
(A) (B) (C) (D)

D

Q

Quantity

(C)

Price

s

D

3 23 43 63

Quantity

10.

What is Dwight's marginal utility consuming the second glass of water?
(A) (B)

after ...

(D)

Price

s

3
23

(C)
(D) P l-----------r~---D

43 63

Q

Quantity

GO ON TO THE NEXT PAGE
22 I 1601O/CAPE 2008

- 4-

n.

Which of the following is NOT a characteristic of indifference curves? (A) (B) They never intersect. They are positively sloped. They are negatively sloped. They are convex to the origin.

13.

In which consumer

of the following diagrams surplus be equal to zero?

will

(A)

P

D

(C)

CD)

Item 12 refers to the graph below the demand curve for yam.

showing

o
(B) P

Q

Price

D

30

y

20 IS

___

L_
I I

I

X

lO
5 1
2 D

0

Q

3

4

5

(C)

P

Quantity (kg)

//
D

/

D

12.

An increase (A) (B) (C) (D)

in the price of yam will result in

/

/

a movement along the demand curve from point X to point Y
a movement along the demand curve
(D)

0 P

Q

from point Y to point X an outward shift of the demand curve an inward shift of the demand curve

D

D

o

Q

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22 I 160 IO/CAPE 2008

-5 _ 14 Supply functions are positively sloped Items 17- 18 refer to the diagram below showing cost and revenue curves of a profit maximising monopolistically competitive firm,
Cost

because
(A)

(B)
(C)-

CD)

of the law of diminishing returns output is supplied at higher prices more output is supplied at higher prices extra output must be attracted from elsewhere

Revenue

[VIC

s ~___',"""----'.~ ......
R ~--~-__;,j
_ __

Q 1--------".;--4--">1..

AR
15 If a firm faces a perfectly inelastic supply curve, which of the following conditions will result when there is an increase in price? CA)
(B) A significant increase in the quantity

xy
MR 17.

supplied
A significant decrease in the quantity

Output

(C)

CD)
16.

supplied A slight increase in the quantity supplied No change in the quantity supplied

Which of the following rectangles represents total cost of the firm? (A) (B) (C) (D) OP\\IX ORUX OSTX OQVY

In a perfectly competitive market, a finn can maximise its profit in the short run when
(A) (B)

(C)
(D)

marginal cost is the same as marginal revenue average cost is the same as average revenue marginal cost is the same as average revenue average revenue is the same as average variable cost

18.

Which rectangle represents total revenue of the firm at equilibrium?
(A) (B)

(C)
(D)

OPWX ORUX OSTX OQVY

221 J 60 J O/CAPE2008

GO ON TO THE NEXT

PAGE

-6hems 19 - 20 refer [0 the diagram below showing a s ituat ion In which the monopolistically competitive firm is in the longrun equilibrium.

Items 21 - 22 arc based on the diagram below which shows an industry which previously was perfectly competitive. but IS now a monopoly. Cost and revenue curves are assumed to be the same.
$
-,

MC

.:
D

AC

,,
1

Me (= Sunder
perfect competition)

~ ~,

p

p)

1

---

P2
»>: ..... 1
,I

3

----

"-"""-" "",
MRI
Qz

PI

9
-,

AR=D

-,

0

" ',MR

0

QJ

Q 21. Which areas represent consumer surplus in the perfectly competitive industry?
(A)

19

Using the marginalist approach to determine equilibrium price and quantity, what is the area between Q1 and Q, called?

(A)
(B) (C) (D)

Excess capacity Shut-down point Equilibrium point Minimum efficiency scale 22.

(B) (C)

(D)

1+2+3+4+5 1+2+3+4+7 3+4+5+7+8 6+7+8+9+10

20.

Economists consider tbe long-run equilibrium under monopolistic competition to be inefficient even though marginal revenue equals marginal cost. Why is this point inefficient in monopolistic competition but efficient in perfect competition?
(A) (B)

The deadweight welfare loss under monopoly is represented by the areas
(A) (B) (C) 1+ 2 +5

4

(D)

5+8 7+8

(C) (D)

Price Price Price Price

is higher, but quantity is greater. is lower, but quantity is greater. is higher, and so is quantity. is higher, but quantity is lower.

23.

The retail trade in Jamaica is dominated by six large firms, having market shares of 13%, 21 %,27%,11 %,14% and x% respectively. This market is said to be (A)
(B) (C)

(D)

concentrated indeterminate unconcentrated highly concentrated

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221 1601O/CAPE2(){)S

-724. Which of the measures below are used by governments to calculate the degree of competitiveness within an industry? I.

Item 26 refers to the diagram below showing the Social Marginal Costs (SMC) , the Private Marginal Costs (PMC) and the Social Marginal Benefits (SMB).
SMC

U.

III.
IV. (A) (B) (C) (D)

Concentration Ratios Human Development Herfindal Hirschman Index Consumer Price Index
c

Price

c

PMC

I and II only I and UI only I and IV only T,II and III on] y 5MB

25.

Which of the following indices a government would be calculating if the squares of the market shares of firms are added together?
(A) (B) (C)

,D

(D)

Producer Price Index Consumer Price Index Human Development Index Herfindahl- Hirschman Index

Quantity

26.

Which of the following is TRUE? (A) (B) (C) (D) Output Q2 is efficient >PMC Output Q2 is efficient =SMB Output Qlis efficient =SMC Output Q I is efficient >PMC because SMC because PMC because 5MB because 5MB

27.

Which of the following statements

an important good? (A) (B)
(C)

characteristic

of a

outlines private

(D)

It is provided by the private sector. It is consumed by everyone in equal quantity and quality. Its consumption has external effects on the consumption or production of others. Its consumption by one person diminishes the quantity available to others.

GO ON TO THE NEXT PAGE 221 I 60 I O/C APE '2008

-828.

Whenever people can enjoy the benefits of public goods without paying for them, the situation is known as the
(A) (B) (C) (D) nonrival problem free-rider problem non-excludable problem drop-in-the-bucket problem

hems 31 - 32 refer to the information below. Jack's Inc paid wages in the amount of $20 000, rent $2 000 and 10 [crest $1 500. TIle business realized a profit of $5000. 31. For the factor of production, much did Jack's Inc pay?
(A)

capital, how

29.

Which of the following statements is TRUE about deadweight loss of a tax?
(A)

(B) (C) (D)

$ 1500 $ 2000 s 5000

szo ()(XJ

(B)

(C) CD)

The greater the elasticity of demand and supply the lesser the deadweight loss of a tax. The lesser the elasticity of demand and supply the greater the deadweight loss of a tax. The greater the elasticity of demand and supply the greater the deadweight loss of a tax. .. Irrespecti v e of the elasticity the deadweight loss of a tax is always
high.

32.

For the factor of production, entrepreneurship, how much did Jack's Inc pay?
(A) (B) (C) (D)

s 1 sao
$ 2000 $ 5000 $20000

33.

Functional distribution of income measures the distribution of income according to
(A) (B)

30.

Which of the following positive externality? 1. fT.
lIT.

are examples

of a

(C)
Obtaining a Bachelor's Degree in Economics Repainting your house and planting roses Disposing of your waste in the nearby stream Hosting a concert that produces noise I and II only
I and IV only

(D)

its functions the source of income the social class of persons who receive it the levels of income received by individuals

Item 34 refers to the table below. Millions Working age population size Labour force Employed Unemployed 34. What is the country's participation rate?
(A) (B) 4% 49% 835% 663%

IV
(A) (B) (C) (D)

150,6 125.8
1003

IT and III only I, II and IV only

25.5 labour force

(C)
(D)

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221 160 la/CAPE 2008

-9 35: The principle of marginal productivity is used to explain how much of any input a profitmaximising firm will
(A) (B)

38.

As compared to a perfect labour market. monopsonist will hire
(A)

a

(C)

(D)

demand, given the price of that input supply, g:iven the price of that input produce in the long run produce in the short run

(B)

(C)

(D)
Item 36 refers to the diagram below applying indifference curve analysis to labour supply, 39.
Income d Budget line

fewer workers and pay a lower wage rate fewer workers and pay a higher wage rate more workers and pay a lower wage rate more workers and pay a higher wage rate

The distinction between absolute and relative poverty is that absolute poverty occurs when an individual
(A)

Indifference curve o'__---~a---___"'b-Leisure

(B)

(C)

36.

Which of the following supply?
(A) (B) (C) (D)
0-

represents labour

cannot afford anything while relative poverty occurs where an individual can afford only a few things to meet his daily needs can afford his baSIC need while relative poverty occurs when an individual cannot afford the daily necessities is operating on the line of perfect inequality while relative poverty occurs where an individual is operating on the line of perfect
equality

a (D)

o-c a-b c-d

falls short of a certain minimum living standard while relative poverty occurs when an indi vidual falls too far behind the average income

37 .

The labour force participation rate can BEST be described as the ratio of
(A)

(B) (C) (D)

the labour force to employment to the labour force employment to the working age population size the labour force to the working age population size
employment

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221 160 I O/CAPE2008

Items 40 - 42 refer to the diagram below.
MeL

3500

___

Minimum

30()O

-r
1
~·I~ -II

w:ag~ set by union

'''ages
(S)

20()O

J

15()O
lOGO

500y
o
10 Z.f} 30 40 50 60 70 Qaantity of labour 80

90

100

40.

How many workers will competitive firm employ?
(A) (B)

a perfectly

42.

How many persons will lose their jobs in the perfectly competitive market as a result of the decision by the union?
(A) (B)

(C)
(D)

10 35 66 95

10

3S
56 95

(C)
(D)

41.

Given that the union intervenes in the market and sets a minimum wage of$3300,how many workers will the perfectly competitive firm employ? (A) (B)
(C) (D)

10 35
66

95

221 1601 O/CAPE 2008

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- 11 . Items 43·45 refer to the diagram below which shows the demand for and supply of health care in a particular market.
?riec b d a

S=MSC

I
I I

I I

I
I

,
I

I I
I

I
e
.0:::: MSB

Quantity

43.

If there is no health care insurance what would be the equilibrium price and quantity of health care?
(A) (B)

(C) CD)

PI and Q) P2 and Q2 Pz and Q} P3and Q}

44.

If a health insurance company offers to pay half the cost of health care, what would be the price and quantity demanded by the consumer?
(A) (B)

45.

What effect will the intervention of the insurance company in the market have on efficiency and social welfare?
(A)

(C)

CD)

PI and QI P'l and P2 andQJ p] and Q3

o,

(B)

(C)

(D)

Allocati ve efficiency will occur because consumers derive more health care services at Q1 • Allocative inefficiency will occur because at Q3 MSB is greater than MSC. Allocative efficiency will occur because at Q2 MSB is equal to MSC. Allocative inefficiency will occur because at Q, MSC is greater than .'

MSB.

IF YOU FINlSH BEFORE TIME IS CALLED ,CHECK YOUR WORK ON THIS TEST.

22116010/CAPE2008

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